Can America Save Elderly Safety Net?
Changes to Social Security seem inevitable, though lawmakers differ on size and scope
FROM its humble beginning as a blue card with a nine-digit number, Social Security has evolved into something far more significant: a guarantee that no American will be left indigent after a lifetime of labor.Skip to next paragraph
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But in the years ahead, as the baby-boom generation begins to retire, the number of Americans collecting benefits will rise substantially, leaving fewer workers behind to foot the bill. If nothing is done, Social Security will begin to spend more money than it receives in just 17 years.
This projection, combined with a growing public awareness of the problem, has opened a window for lawmakers to reform this 60-year-old social program.
With bills pending in Congress, an advisory council crafting a report, and continued attention from the White House, 1995 could become the year that Americans looked ahead, banded together, and ensured that Social Security will serve tomorrow's retirees as admirably as it has served their forebears.
Getting there, however, won't be easy. With Republicans running Congress, a Democrat in the White House, and an election approaching, politics stand to play a central role in the debate.
In addition, powerful lobbying groups like the American Association of Retired Persons are set to unleash their angry memberships on Congress if the current system is threatened, and youth advocacy groups are poised to protest if the system is not reformed.
While some modifications are likely, policymakers differ widely on the proper size and scope.
This week, the Washington-based Cato Institute, a libertarian think-tank, unveiled its plan for radical reform. The problem with Social Security in its current form, says project adviser William Shipman, is that it constitutes a ''pyramid scheme'' that penalizes younger workers.
''Social Security is a misguided political construct,'' he writes, ''wherein one's retirement benefits are dependent on the willingness of future generations to be taxed.''
Under the Cato plan, patterned after reforms Chile instituted in 1981, Social Security would be turned over almost completely to private hands.
Throughout each worker's career, money normally paid into the Social Security trust fund would collect in a personal account.
Although the individual would not have complete access to the money until they retire, each worker would be able to invest it in capital markets instead of paying into Social Security. Not only would this plan eliminate bureaucracy, says Cato's Michael Tanner, it would ''de-politicize'' the issue.
But most important, Mr. Tanner says, it would allow individuals to set their own goals for retirement, retire when they want to, and accumulate a substantial nest egg for their children. Assuming normal returns on their investments, he says, someone who works for minimum wage his or her entire life could retire a millionaire.
The problem, is how to manage the transition from today's method - whereby workers pay 12 percent of their wages into a general pool - into the market-based scheme, according to Gary Burtless of the Brookings Institution, a Washington-based think-tank.